Transcription
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The Euro zone may be heading straight into its next major financial crisis, and this one could be the big one. Europe has faced crisis after crisis over the past two decades. The global financial meltdown. Then came the sovereign debt crisis, the pandemic, surging debt load, persistent inflation. But here's the troubling part. Each time Europe has responded just enough to survive, just enough to get by without fixing the deep structural problems that make the euro vulnerable in the first place. And right now, those vulnerabilities are piling up. As the EU continues to militarize and to cut social spending programs in favor of new bunkers and more weapons, it is clearly on a downward spiral and possibly it has passed the point of return.
The euro as a shared currency across 20 countries was originally designed as a cornerstone of European unity and economic strength. In many ways, it succeeded. It simplified trade. It boosted cross-border investments. It became a powerful symbol of European integration. But from the very beginning, the euro was built on an incomplete foundation. And here is what I mean. Many economists argue that the biggest flaw is a monetary union without a fiscal union. That's like sharing a bank account with your neighbors, but letting everyone spend however they want, as much as they want, without any accountability, without any shared rules about who's going to pay bills at the end of the month. It works until it doesn't. It works until someone overspends and then everyone is on the hook.
The original architects of the euro understood this really well. They knew that this is a risk. They created the European Central Bank or the ECB and gave it one job. Keep prices stable. That is the primary job of the ECB. Not support national governments, not bail out countries, not fund proxy wars, just fight inflation and do it well. But we know that has not been the case. For example, earlier this year, Ursula von der Leyen unveiled an 800 billion euro plan to rearm Europe as its economies are spiraling down. For example, Germany's economy is collapsing as the country continues to de-industrialize amid political turmoil and social unrest. Macron's government in France is hanging by a thread as its debt load is surging. Italy, the third largest Euro zone member country, finds itself on an unsustainable public debt path. So, we have three largest EU economies, literally struggling while the EU leaders are approving billions in euros in military spending to take you to war in Eastern Europe to keep their economies afloat.
Basic uh we've discussed everything that is around peace through strength and uh of course security guarantees are of utmost importance for Ukraine but we need comprehensive security guarantees. This includes that we have to put Ukraine in a position of strength that it has the means to fortify and protect itself um from the economic survival to the military uh resilience. It's basically turning Ukraine into a steel porcupine that is indigestible for potential invaders and uh therefore the focus is um not only on the military supply but also for example securing the energy system and making sure that over time uh this is a strong and resilient country.
France's annual deficit projected at 5.5% of GDP in 2025 will hit 6.1% of GDP by 2030, at which point its total public debt will stand at 128% of GDP. Look, even Germany's economic prospects look better than those of France. The IMF still expects the budget deficit to widen steadily from 3% of GDP to over 4% of GDP by 2030 as Berlin unleashes a flood of infrastructure and military spending. By comparison, says Politico, in the years before the pandemic, the country consistently ran a budget that was either in balance or in modest surplus. So, we've got Germany, the first largest economy in the EU, France, the second largest economy, and Italy, the third largest economy, on this unsustainable path. And that looks plainly dangerous for the euro's future, especially since the European Central Bank is no longer buying its member countries' bonds on the massive scale that it was doing after the pandemic-induced recession.
When the EU was created, member states promised to keep their debts and deficits under control. And if anyone ran into trouble, they would be on their own. No bailouts. But here's where that agreement fell apart. The euro's creators never clearly spelled out what should happen if a country defaulted on its debt. They didn't expect advanced economies like Greece, Italy, or Spain to face that kind of crisis. And they never built real crisis tools to deal with sovereign defaults or banking collapses in the EU. So when the crisis came, first the 2008 global financial crash, then the 2010 Eurozone sovereign debt crisis, the system bent and bent again. And each time it was the European Central Bank that stepped in to hold things together. The ECB, which was supposed to stay above politics, became the de facto crisis manager for the entire Euro zone and its balance sheet ballooned with risky assets and government debt. As a result, the ECB now holds an enormous portfolio of sovereign bonds. Many Eurozone banks do too because for years, banks were allowed to treat government debt as completely risk-free. That means if a country defaults, the banks are in deep, deep trouble just like in the last crisis.
Meanwhile, national debts have soared. Growth is stagnant. Bureaucracy and regulations stifle innovation and most dangerously, the incentive for governments to be fiscally responsible has collapsed because nowadays many of them face substantial political instability. Governments borrow heavily, banks load up on sovereign debt, and investors assume that the ECB will step in no matter what happens. But what if the next crisis is bigger than the ECB can handle? What if a sovereign default triggers a full-blown banking collapse? These are not hypothetical questions anymore. These are real risks as Italy, Germany, France and other European nations continue to struggle economically and do find themselves on an unsustainable fiscal, political and economic path because in the worst-case scenario, a large European country defaults and I just mentioned France and Italy carry heavy, heavy debt burdens already, inflation would spike and Europe is likely to face a chaotic financial meltdown.
Let me know what you think about these recent developments and whether you believe that the EU will be able to handle no matter what life throws at it. Let me know your thoughts in the comments below. I would love to hear from you. Give this video a thumbs up. Consider sharing it and subscribe on YouTube. I would love to have you back for my next video. And remember to follow me on Substack and Patreon. Support my work. I would greatly appreciate it. Enjoy the rest of your day. Take care.